Jordan seeking new oil supply in case of war in Iraq

AMMAN, Jordan—Jordan, which currently obtains all its oil from Iraq, is seeking commitments from other nearby countries for new oil supplies in case of war, the kingdom's prime minister said Thursday.

Even if Jordan is successful in replacing Iraqi oil, losing the Iraqi supply will cost this kingdom dearly. Half of the roughly 38 million barrels of oil Jordan receives from Iraq annually is free; Iraq sells Jordan the other half well below market rates.

Prime Minister Ali Abu al Ragheb refused to say which countries might step in to help Jordan, one of the few countries that openly allied itself with Iraq during the Gulf War in 1991. "Oil is available," he said. "We have arrangements that we will be using in the case" Iraq loses a war.

Other sources said Jordan is finalizing agreements with Saudi Arabia, the United Arab Emirates and Kuwait. "We have been told we will be helped," one government official said, adding that the agreements will be reached within three weeks.

The issue of Iraqi oil is a sensitive one for Jordan. The preferential pricing scheme that Jordan enjoys has been in place since the Iran-Iraq war of the 1980s, when Jordan provided economic support to Iraq and Iraq provided oil in return.

The cheap oil has been critical to Jordan's effort to keep its fragile economy afloat. After the 1991 war, Jordan's economy suffered as U.N. sanctions limited trade with Iraq from which Jordan had benefited. The downward spiral continues today.

This time around, Jordanian officials have assured the public that it will not face any severe adverse economic effects in the event of war, though they also avoid any suggestion that war is inevitable, saying they are focusing their energies on discouraging a war.

There is no doubt that the loss of Iraqi oil, even with new arrangements for supply, comes with a hefty price tag, since new suppliers are unlikely to agree to the no-pay Iraqi terms. Al Ragheb said that every dollar the price rises above $26 per barrel will cost the kingdom $20 million annually. The price of oil on the spot market recently has been hovering around $37 a barrel.

The government already has taken other measures to sustain its oil supply if there is war. In the country's port city of Aqaba, officials have stored nearly 2 million barrels, or a month's supply of oil; another 2.4 million barrels are being stored in a tanker that Jordan recently bought from Norway.

The government believes it will continue to receive oil from Iraq if there is a war. "As long as they keep supplying, we will keep taking," said a Jordanian political analyst who asked not to be named.

After the war, Jordan may be able to resume purchasing oil from Iraq, although analysts believe the price will go up. "There is an expectation that will happen, maybe not on the exact same terms," a Western diplomat said.